Two cornerstones of empirical and policy analysis of firms in industrial organization, macro and labor are the determinants of the firm size distribution, and the determinants of sorting between workers and firms. We propose a unifying theory of production where management resolves a tradeoff between hiring more versus better workers. The span of control or size is therefore intimately intertwined with the sorting pattern. We provide a condition for sorting that captures this tradeoff between the quantity and quality of workers and that generalizes Becker’s sorting condition. A system of differential equations determines the equilibrium allocation, the firm size and wages, and allows us to characterize the allocation of the quality and quantity of labor to firms of different productivity. We show that our model nests a large number of widely used existing models. We also augment the model to incorporate labor market frictions in the presence of sorting with large firms.
Assortative Matching with Large Firms
Econometrica. 2018 86(1): 85-132. With Jan Eeckhout.
When heterogeneous firms can choose both how many and which workers to hire, we illustrate consequences for firm-size and wage inequality.
Note a correction for the condition with capital: corrigendum.
Journal of Political Economy, 2017, 124(1), 224-264. With G. Grossman & E. Helpman. (simulations, matlab). We introduce two-sided heterogeneity into a Hecksher-Ohlin-style trade model to study factor reallocation and wage inequality within and across sectors. Go to paper
Journal of Economic Theory, 2009, 114(2), pp. 445-471. With Manolis Galenianos. We study wage dispersion and (in)efficiency in directed search when workers can strategically apply for multiple jobs but firms can only make one offer. Go to paper
Quarterly Journal of Economics, 2008/123(2), pp. 621-661. With A. Postlewaite. [technical appendix] In a model of social learning, the better informed (wealthier) consumers get preferential service because their consumption signals high quality to others. Go to paper
B.E. Journals of Theoretical Economics, 2013, Vol 13 (1). With S. Ludwig and A. Sandroni. We document a revealed preference for randomization for “social goods”, while such non-standard behavior is not present for private consumption goods. Go to paper
Review of Economic Studies, 2019 86(4): 1411-1447. With Michèle Belot and Paul Muller. We develop and evaluate experimentally a novel tool that redesigns the job search process by providing tailored online advice about related occupations. Go to paper
Econometrica, 2015, Vol 83 (5), 1849-1875. With K. Kim. [online appendix] We introduce cheap-talk into a market game and study if the equilibrium can replicate the constraint efficient allocation under (reserve) price posting. Go to paper
International Economic Review, 2011, 52(1), pp 85-104. With M. Galenianos and G. Virag. [technical appendix] In directed search with a finite population, minimum wages improve employment but reduce output and efficiency, and reverse for unemployment benefits. Go to paper